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Forward contract
A contract negotiated privately between two parties to buy or sell a fixed amount or quantity of an underlying (for example a financial asset or a commodity) at an agreed price on a specific future date.
(1) This bilateral agreement entered into on a given date is only carried out at an agreed date in the future. It generally requires one party to deliver, and the other party to take delivery of, the underlying on that future date under agreed conditions. Certain types of agreements, for example forward rate agreements, can be settled through the exchange of a price differential in cash rather than the delivery of an underlying.
(2) Forwards differ from futures in that their terms and conditions may be customized and negotiated directly by the parties, whereas the terms and conditions associated with futures are established by an organized market to make these contracts easily negotiable.
(3) Forwards include forward exchange contracts, forward rate agreements (FRA), commodity forward contracts, stock forwards, index forwards and credit spread forwards.
Translations
Synonyms and variations
- Forward